- Strong Q3 earnings season nearly in the books. With 90% of S&P 500 Index companies having reported, S&P 500 Index earnings growth is tracking to an impressive 27.9% year-over-year increase, the highest growth rate since the fourth quarter of 2010 and 6 percentage points above expectations as of quarter end. Beat rates of 77% and 60% for earnings and revenue are impressive, as is the amount of earnings upside. However, we are most impressed with the amount of revenue upside-tougher to generate-that has been generated over the past two weeks. Revenue growth is tracking to an 8.5% year-over-year increase, compared to 7.7% just two weeks ago. The strong top line performance, clearly boosted by a strong U.S. economy, is particularly impressive given there is no direct benefit from the lower corporate tax rate. The resilience of earnings estimates, despite tariffs, has also been impressive. S&P earnings estimates for the next 12 months have only been reduced by 0.8% since quarter end, less than the 5-year average decline during earnings season of 1.6% and the 10-year average decline of 2.1% (source: FactSet).
- Oil higher after entering bear market. WTI crude is up ~1% this morning near $61/barrel after a record streak of 10 consecutive declines sent prices into bear market territory on Friday. Today’s bump comes on the heels of potential OPEC production cuts of up to one million barrels per day in the face of rising inventories, global growth concerns, and the impact of U.S.-imposed sanctions on Iran being muted by broad exemptions. However, with Russia’s oil minister cautioning against “hasty” policy changes, OPEC producers investing billions to increase production capacity, and the U.S. continuing to pump at record levels even as we head into a seasonally weaker period of the year, oil may have difficulty getting back to the mid-$70/barrel level over the near term.
- Brexit uncertainty, Italy budget battle weighing on Europe. Stocks in Europe are broadly lower today as British Prime Minister Theresa May faces mounting criticism from both pro-Brexit and pro-European factions, increasing the risk that her plan fails to pass in Parliament, which could result in a potentially chaotic “no-deal” scenario. Elsewhere, Italy continues to butt heads with European Union (EU) officials over its 2019 budget, though Italian Finance Minister Tria floating the idea of appeasing the EU with amendments that include an automatic trigger to reduce public expenses in order to keep the deficit below the threshold. Though we don’t view these issues as existential threats, these prominent examples of political and structural tensions support our cautious approach to investing in foreign developed equities.
- Trade check-in. The U.S.-China trade dispute has carried on for about eight months, with no agreement in sight. So far, the global economy has avoided a trade breakdown, as exports and imports are growing steadily for both the U.S. and China. In this week’s Weekly Economic Commentary, due out later today, we examine the current state of trade, and highlight small cracks we’ve observed in the global economy, which have formed indirectly from trade tensions.
- Midterm takeaways. In last week’s midterm election, Republicans held onto the Senate and the Democrats claimed control of the House, bringing potential gridlock to Congress. In this week’s Weekly Market Commentary, due out later today, we discuss investment implications of the midterms, including positive seasonal tailwinds now in place for stocks. We also highlight potential winners and losers at the sector level, and risks that the leadership change in Washington may present. For a summary of our thoughts, check out our LPL Research blog, which will be published later today.
- Earnings season begins to taper off as only 12 S&P 500 companies are slated to report earnings. On the economic front, U.S. industrial production, retail sales, consumer price inflation (CPI), and business inventories are due out. Overseas, Japanese third-quarter gross domestic product data will be released, in addition to CPI readings out of Germany, France, and the composite Eurozone. Track these and other important events on our Weekly Global Economic & Policy Calendar.
- LPL Market Signals Podcast. In our latest episode, listen to LPL Financial Chief Investment Strategist John Lynch and Senior Market Strategist Ryan Detrick discuss why the S&P 500 Index ‘s tumultuous October doesn’t dampen our optimism for the U.S. economy. Subscribe to the free Market Signals podcast series on iTunes, Google Play, Spotify, or wherever you get your podcasts!
- Japan PPI Report (Oct)
- NFIB Small Business Optimism (Oct)
- Japan GDP Report (Preliminary, Q3)
- China Retail Sales (Oct)
- China Industrial Production (Oct)
- CPI Report (MoM, Oct)
- Germany GDP Report (Preliminary, Q3)
- Eurozone Industrial Production (Sep)
- Eurozone GDP Report (Preliminary, Q3)
- Retail Sales (MoM, Oct)
- Initial Jobless Claims (Nov. 10)
- Business Inventories (MoM, Sep)
- Eurozone Trade Balance (Sep)
- Eurozone CPI Report (Oct)
- Industrial Production (MoM, Oct)
- Capacity Utilization (Oct)
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Index data obtained via FactSet
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